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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28082
Experience:  Taxes, Immigration, Labor Relations
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I sent $200,000 to invest in an annuity, filed a

Customer Question

I sent $200,000 to invest in an annuity, filed a commutation, received $100,000, now received a 1099-R - do I have to report this as taxable income? It is my understanding I only pay tax on what I made above and beyond the $200,000 = thank you
Submitted: 9 months ago.
Category: Tax
Expert:  Lev replied 9 months ago.

You are correct - distribution of what you actually contributed with after tax dollars will be tax free.
That will be very true if you take a full distribution.
However - if you are receiving a partial distribution - we need to be clear HOW a taxable portion is determined.
The administrator of your annuity should issue you a form 1099R which reports total distributions AND taxable amount.
In some situations - the administrator not able to determined the taxable amount - and will check the appropriate box on 1099R. If that is your case - you or your tax preparer will need to prepare a special worksheet to determine the taxable portion of your distribution.

Customer: replied 9 months ago.
in Box 7? I have the code 7D - what does that mean?
Expert:  Lev replied 9 months ago.

code 7 means "Normal distribution." - generally that code indicates no penalty for early distribution.

code D means - Annuity payments from nonqualified annuities and distributions from life insurance contracts that may be subject to tax under section 1411.

section 1411 is about NIIT - net investment income tax - applied at 3.8% to those having income above the statutory threshold amounts.

For singles - above $200,000.

Customer: replied 9 months ago.
cool, so from all of that, it looks like I should owe no taxes?
Expert:  Lev replied 9 months ago.

That depends on what amount is reported as taxable distribution in box 2a - can you verify?

Expert:  Lev replied 9 months ago.

In general - the administrator of your annuity will calculate which part of your distribution is taxable and which is related to recovery of your original contribution.

You should get form 1099R and

line 1 reported total distribution

while line 2a reports only taxable portion

If the administrator doesn't report taxable portion - you may need to calculate it on your own using following worksheet

https://apps.irs.gov/app/vita/content/globalmedia/simplified_method_worksheet_1040i.pdf

Let me know if you need any help with reporting.

Otherwise,

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